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OmniVision Technologies, Inc. Earnings: Is Growth Gone for Good?

Can the Apple supplier manage to keep its earnings rising?

On Thursday, OmniVision Technologies (NASDAQ:OVTI) will release its quarterly report, and investors have sent the stock rising recently on hopes that the provider of imaging sensors to Apple (NASDAQ:AAPL) and other customers will be able to enjoy in the success of the iPhone maker recently. Yet competition from Sony (NYSE:SNE) has posed a substantial threat to OmniVision lately, and with expectations for falling revenue and earnings compared to year-ago levels, it's uncertain whether shareholders really should count on positive results from OmniVision in the future.

Smartphones have generally replaced dedicated cameras for most users, and as a result, OmniVision's image-sensor technology was in high demand for a long time. Yet as smartphones got to be more popular, OmniVision had to deal with other entrants in the industry, and it suffered a common problem among Apple suppliers in relying more than it arguably should have on a single customer. What's next for OmniVision? Let's take an early look at what's been happening with OmniVision Technologies over the past quarter and what we're likely to see in its report.

5-megapixel PureCel sensor. Source: OmniVision Technologies.

Stats on OmniVision Technologies

Analyst EPS Estimate

$0.27

Change From Year-Ago EPS

(12.9%)

Revenue Estimate

$292.11 million

Change From Year-Ago Revenue

(13.1%)

Earnings Beats in Past 4 Quarters

4

Source: Yahoo! Finance.

Can OmniVision earnings keep crushing expectations? In recent months, analysts have had mixed views on OmniVision earnings, boosting their April-quarter estimates by a nickel per share but cutting their fiscal 2015 projections by a dime per share. The stock has climbed more than 30% since late February.

OmniVision Technologies gave an impressive quarterly report back in February, reporting 23% growth in net income despite seeing sales slump almost 17%. OmniVision's CEO pointed to the success of its PureCel image sensors, which he argues compete well on price while offering better pixel performance and using less power. OmniVision also gave positive guidance for the just-ended quarter, leading to the boost in analyst expectations. The report eased concerns that demand from Apple and other buyers could cause trouble for OmniVision if growth in mobile devices generally began to slow.

But the big threat to OmniVision Technologies remains Sony and other image-sensor makers. OmniVision has shared responsibility for supplying sensors to Apple for the iPhone 5s, but Sony's offerings got the better billing in the smartphone, and Sony's reputation has started to surpass OmniVision's among many reviewers. As growth in the smartphone area shifts from the relatively mature U.S. market to higher-growth areas in the Asia-Pacific region, OmniVision will have to work hard to keep Sony at bay on its home turf.

Still, OmniVision Technologies won't go down without a fight. The company is looking to offer a low-power chip for use in wearable computing devices, with its sensor being the first shutter sensor on the market to reach the milestone of providing 400-by-400 pixel resolution and 120 frames of video per second. Because of Sony's economies of scale, it's critical for OmniVision to provide superior performance in its more innovative designs in order to keep pace with its larger rival.

In the OmniVision earnings report, watch closely to see how the company is faring in China. With LTE rolling out, smartphone growth in China could be huge, but OmniVision needs to make sure that its offerings get their fair share of the market. Otherwise, OmniVision could let shareholders down by failing to make the most of its growth opportunity.

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Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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